In need of advice

[eranhor]

Hi all,
I?m starting up in the property market and would like to reach out to the more experienced and smart people on this forum for their views and advice.
I?m 38 years old + 3 kids, income of 150k-175k, renting in the lower north shore and have total cash around 850k (some needs to be left as cash and some going into other asset classes, so let?s say available cash of 750k).
At first I was thinking to buy a PPOR in the lower north shore and an IP, but looking at the prices of houses in my area it just doesn?t make sense for me to buy a 1.3m+ residence.
Lately I switch my view on things and now am thinking of renting (not me nor my wife have any issues living in a rental) a decent house in the area where I live (800-1300 p.w.) and buying multiple IPs.

Does this make sense?

As you can probably guess based on my income and number of kids, I don?t have a lot of available time and I would probably need professional help around structuring my property portfolio and debt facilities and also help finding the actual IPs.

Do buyers agents do the above or are they only concentrating on finding property?

Any other tips for a newbie property investor in my situation?
What suburbs do you recommend looking at (I?d probably want 2 IPs in Sydney, one in the inner city)?

Starting our fresh in this, I'll probably have million more questions, but I think the above is a good start to get some pointers from the exports on this board.

[Edit] As I'm aiming for multiple IPs, I'm looking for a mix of yield and CG and geographic diversity.

Thanks in advance for the help

Cheers,
Eran

 

[superAndrew]

Lately I switch my view on things and now am thinking of renting (not me nor my wife have any issues living in a rental) a decent house in the area where I live (800-1300 p.w.) and buying multiple IPs.

Does this make sense?

Yes it does. It's usually better to rent and invest instead of buying a PPOR, financially.

Would you be open to invest interstate?

It looks like Sydney has maxed out but there is still some growth left in Brisbane.

As you can probably guess based on my income and number of kids, I don?t have a lot of available time and I would probably need professional help around structuring my property portfolio and debt facilities and also help finding the actual IPs.

Do buyers agents do the above or are they only concentrating on finding property?

Usually they focus only on finding properties.

Cheers
Andrew

 

[Greg Reid]

There is no right or wrong answer as to a first PPOR or an IP, it depends on your goals. With a family and kids, your stage or your life cycle may prefer security and location for schools for the next decade, so a PPOR may be the way to go. Also do some numbers, a purchase for $1.3m put in $850k leaving a mortgage of $500k odd. IO on a $500k debt is around $500 a week, cheaper than what the rent you are proposing.

What you could then do is structure the finance so you borrow against this PPOR to extract an 80% LVR facility to use for the IP settlement finance (say to $500k). You have minimised your non deductible debt yet have your home to live in and still can finance an investment portfolio. Obviously you need to confirm borrowing capacity etc but it could be an option and may give you better borrowing capacity than having a $1.3k weekly rent commitment. A $500k LOC facility may give you the ability to purchase 3 or 4 IP's median value depending on area and borrowing capacity re rent yields or invest in other asset classes.

As Andrew said, a BA normally only assists on locating and purchasing properties, you need a different skill set to consider strategies to build a portfolio using leverage.

Good luck with it, you appear to be in a good position to start.

 

[Redom]

Hmm i really like the flexibility that you've adopted. Most people i know in a similar situation wouldn't think twice and buy a PPOR with that cash and pay down the mortgage.

Instead, you could build a very decent sized asset portfolio, use the power of leverage to get those assets working for you.

If you deploy a good mix of CG/yield properties in your strategy, you could build up a base of positive cash flow to pay your entire rental cost...AND have a mix of CG properties to build your asset base over time.

Goodluck!

 

[eranhor]

Thanks for the replies all, some good points there and I?m happy I reached out to the Somersoft community.

Would you be open to invest interstate?

Yes, I?d think that having geographical diversity is key for a healthy property portfolio

Usually they focus only on finding properties.

So if i?d want someone to help my with both the financing side and the property accumulation side, who would that be? Would I need to go to a mortgage broker for the financing and a BA to help find a property? Are there entities that cover all? (BTW, I?m in no way sold on using a BA, but I recognise that in some scenarios it would be beneficial).

There is no right or wrong answer as to a first PPOR or an IP, it depends on your goals. With a family and kids, your stage or your life cycle may prefer security and location for schools for the next decade, so a PPOR may be the way to go.

That is correct, but for our specific circumstances, we?re not too worried about the security of home ownership. We actually like the flexibility that renting provides, especially being able to rent in areas where we can?t afford to buy.
Unfortunately, if we want to buy a decent house close to our kids school (that they?ll be there for the next 6 years) we?l to fork out 1.5+ mil. But, for 1.3k we can rent in that same area.
Also, maybe there are home owners that would prefer some one looking for a long term rent and that can provide a win-win situation.

Also do some numbers, a purchase for $1.3m put in $850k leaving a mortgage of $500k odd. IO on a $500k debt is around $500 a week, cheaper than what the rent you are proposing.
What you could then do is structure the finance so you borrow against this PPOR to extract an 80% LVR facility to use for the IP settlement finance (say to $500k). You have minimised your non deductible debt yet have your home to live in and still can finance an investment portfolio. Obviously you need to confirm borrowing capacity etc but it could be an option and may give you better borrowing capacity than having a $1.3k weekly rent commitment. A $500k LOC facility may give you the ability to purchase 3 or 4 IP's median value depending on area and borrowing capacity re rent yields or invest in other asset classes.

This is definitely one of the option, and is/was actually plan A; buying a PPOR for ~1.3M and 2-3 IPs.
But if I take a 7 year view, renting + investing makes a lot more financial sense. In my calculation, I can rent for 1.5k p.w (not planning to, but using that for worst case scenario calculations) and buy 4 IPs (average 500k each) and my out of pocket expense would be less then 2k per month for the first 3 years and will get to 3k after 7 years. This has been calculated using an LVR of 85% and leveraging an offset account that will hold 7 years worth of rental cash. Obviously this is not the most efficient model, but it gives and indicative base scenario that can be maximised as we progress on this journey.

Hmm i really like the flexibility that you've adopted. Most people i know in a similar situation wouldn't think twice and buy a PPOR with that cash and pay down the mortgage.

Yes, this has definitely been a journey for us from the standard mould of PPOR to rent and invest.

If you deploy a good mix of CG/yield properties in your strategy, you could build up a base of positive cash flow to pay your entire rental cost...AND have a mix of CG properties to build your asset base over time.

That?s the plan. Also part of the plan is to use available cash in an offset account to lower repayments as building up the portfolio will take some time and my cash is available now.

 

[Deltaberry]

There's no right or wrong. IPs generate cashflow. PPOR is tax free.